Vildirect: IncomeTax-caselaws-2017-VIL-1517-ITAT-AGR

2017-VIL-1517-ITAT-AGR

Income Tax Appellate Tribunal AGRA

I.T.A No. 191/Agra/2016

Date: 15.05.2017

ALIGARH MUSLIM UNIVERSITY

ITO (TDS) ALIGARH

For The Assessee : Dr. Narendra, AR.
For The Revenue : Shri Waseem Arshad, Sr.DR.

BENCH

SHRI A. D. JAIN, JUDICIAL MEMBER, AND DR. MITHA LAL MEENA, ACCOUNTANT MEMBER

JUDGMENT

PER, A. D. JAIN, JUDICIAL MEMBER:

This appeal has been filed by the assessee against the order of the ld. CIT(A), dated 05.05.2016.

2. The facts are that the assessee/deductor University is paying salary to its employees after deducting tax at source u/s 192 of the Income Tax Act. As per the record, it came to notice of the ITO (TDS) that from F.Y. 2014-15, the assessee is allowing the exemption of income tax under section 10(10AA)(i) of the Act on the 2 payment of leave salary at the time of retirement/superannuation to its employees, considering them as employees of the Central Government. After considering the assessee’s reply to the show cause notice issued as to why the assessee be not considered as an assessee in default under sections 201/201(1A) of the Act, in short deduction of tax due to allowing the exemption under section 10(10AA)(i) of the Act, beyond the maximum limit of Rs. 3 lacs, the AO treated the assessee as an assessee in default under sections 201/201(1A) of the Act. The ld. CIT(A) directed the ITO (TDS) to allow the assessee to adduce evidence that the deductees had themselves paid the tax due on their leave salary and in case it was established that due taxes had been paid by some employees, in respect of the short deduction, to charge only interest under section 201(1A) of the Act from such employees and not to hold the University as an assessee in default and to recompute the amounts in respect of which the University would be an assessee in default under section 201(1) and also the interest chargeable under section 201(1A).

3. The ld. Counsel for the assessee has maintained that the order of the ld. CIT(A) is liable to be cancelled inasmuch as in order to declare a deductor who had failed to deduct tax at source, as an assessee in default, the condition precedent is that the payee/assessee failed to pay tax directly, and that this being a foundational issue, it is only after finding that the payee has failed to pay tax 3 directly, that the deductor can be deemed to be an assessee in default in respect of such tax. Reliance had been placed before the ld. CIT(A) on “M/s Jagran Prakashan Ltd. vs. DCIT”, 345 ITR 288 (All.) and the decision of the Delhi Bench of the Tribunal in ITA No. 5992 to 5994/Del/2012, order dated 04.03.2016, in the case of “The Branch Manager, Allahabad Bank, Wright Ganj, Ghaziabad vs. ITO (TDS/Survey)”, Ghaziabad (copy placed on record).

4. On the other hand, the ld. DR has placed strong reliance on the impugned order, contending that no prejudice stands caused to the assessee, since the ld. CIT(A) has only remitted the matter to the ITO (TDS) to allow opportunity to the assessee to lead evidence to establish the fact that the deductees have themselves paid due tax on their leave salary and to thereafter recompute the amounts in respect of the liability of the University concerning default under sections 201(1) and 201(1A) of the Act.

5. We have heard the parties and have perused the material on record. As per the Explanation to section 191 of the Act, if any person, who is responsible for paying any income by way of perquisite which is not provided for by way of monetary payment, being an employer, does not deduct or, having deducted, fails to pay, or does not pay tax and where the assessee has also failed to pay such tax 4 directly, then, such person shall be deemed to be an assessee in default within the meaning of section 201(1), in respect of such tax.

6. Therefore, the Explanation to section 191 provides that if the employer does not deduct the tax in respect of payment of income in the nature of a perquisite, he shall be deemed to be an assessee in default under section 201(1). However, such deeming is subject to the pre-condition that the assessee has also failed to pay such tax directly. The operative expression in the Explanation is “and where the assessee has also failed to pay such tax directly”. This expression is succeeded by the expression “then, such person shall……………………be deemed to be an assessee in default………………………….in respect of such tax”.

7. Hence, a bare perusal of the Explanation to section 191 of the Act itself makes it clear that it is only when the employer fails to deduct the tax and the assessee has also failed to pay tax directly, that the employer can be deemed to be an assessee in default. In other words, in order to treat the employer as an assessee in default, it is a pre-requisite that it be ascertained that the assessee/ employee has also not paid the tax due. The reason for this obviously is that under the procedure for collection and recovery by way of deduction of tax at source, under Chapter XVII of the Act, the Government intends to ensure such deduction of tax at source and, thereby, collection and recovery of tax. It is for this reason that in the 5 Explanation to section 191, it has been provided to ensure payment of due taxes, by the deductor, in case the same have not been paid by the deductee.

8. From the above, it becomes abundantly clear that before treating the deductor to be an assessee in default under section 201(1) of the Act, it is the bounden duty of the ITO (TDS) to ascertain and ensure that the assessee has also not paid due tax, for which, the assessee has to provide the requisite details to the ITO (TDS).

9. The above position of law has been taken judicial notice of by the Hon’ble Jurisdictional High Court in “M/s Jagran Prakashan Ltd. vs. DCIT”, 345 ITR 288 (All). Therein, their Lordships have, inter alia, held as under:

“………..it is clear that deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly. In the present case, the Income tax authorities had not adverted to the Explanation to Section 191 nor had applied their mind as to whether the assessee has also failed to pay such tax directly. Thus, to declare a deductor, who failed to deduct the tax at source as an assessee in default, condition precedent is that assessee has also failed to pay tax directly. The fact that assessee has failed to pay tax directly is thus, foundational and jurisdictional fact and only after finding that assessee has failed to pay tax directly, deductor can be deemed to be an assessee in default in respect of such tax…..”

10. In “The Branch Manager, Allahabad Bank” (supra), the Delhi Bench of the Tribunal quashed the assessment, holding that the AO had not made any exercise to ascertain whether the deductee/payee assessee had failed to pay tax, and that the AO ought to have assume jurisdiction only after satisfying this jurisdictional fact, as laid down by the Hon’ble Jurisdictional High Court in “M/s Jagran Prakashan Ltd.” (supra). The Delhi Bench of the Tribunal also took note of the following observations made by the Agra Bench of the Tribunal in another similar matter of the Allahabad Bank:

“6. It is thus clear that the onus is on the revenue to demonstrate that the taxes have not been recovered from the person who had the primarily liability to pay tax, and it is only when the primary liability is not discharged that vicarious recovery liability can be invoked. Once all the details of the persons to whom payments have been made are on record, it is for the Assessing Officer, who has al l the powers to requisition the information from such payers and from the income tax authorities, to ascertain whether or not taxes have been paid by the persons in receipt of the amounts from which taxes have not been withheld. As a result of the judgment of Hon’ble Allahabad High Court in Jagran Prakashan’s case (supra), there is a paradigm shift in the manner in which recovery provisions under section 201(1) can be invoked. As observed by Their Lordships, the provisions of Section 201(1) cannot be 7 invoked and the "tax deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly”. Once this finding about the nonpayment of taxes by the recipient is held to a condition precedent to invoking Section 201(1), the onus is on the Assessing Officer to demonstrate that the condition is satisfied. No doubt the assessee has to submit all such information about the recipient as he is obliged to maintain under the law, once this information is submit ted, it is for the Assessing Officer to ascertain whether or not the taxes have been paid by the recipient of income. This approach, in our humble understanding, is in consonance with the law la id down by Hon’ble Allahabad High Court.”

11. In the case before us, the ld. CIT(A) has stated that before him, no evidence was produced to show as to which of the employees of the University had paid due taxes in respect of leave salary income on which TDS was not made properly and that it was therefore, that he was unable to quantify the relief that can be allowed in respect of such employees. However, while observing thus, the ld. CIT(A) has remained oblivious of “M/s Jagran Prakashan Ltd.” (supra), though it was specifically cited before him in the written submissions filed by the assessee University before the ld. CIT(A), as reproduced by him verbatim at pages 3 to 11 of the impugned order (relevant portion at page 10 of the order).

12. To reiterate, as per the law laid down in “M/s Jagran Prakashan Ltd.” (supra) it is not within the purview of the ld. CIT(A) to fill in the lacuna of the ITO (TDS). In fact, it was for the ITO (TDS) to ascertain the position, as prescribed by the Explanation to section 191, that is, as to whether the assessee had failed to pay the due tax directly, and only thereafter to initiate proceedings to deem the assessee as an assessee in default under section 201(1) of the Act. As observed by the Lordships, this is a foundational and jurisdictional matter and therefore, the Appellate Authorities cannot place themselves in the position of the ITO (TDS) to ratify a jurisdiction wrongly assumed.

13. The only prerequisite was that the details of the persons to whom payments were made, be on record. And once that is so, i.e., the assessee has submitted the requisite details to the ITO (TDS), it is for the ITO (TDS), as mandated in “M/s Jagran Prakashan Ltd.” (supra), to ascertain, prior to invoking section 201(1) of the Act, as to whether or not the due taxes have been paid by the recipient of the income.

14. In the present case, a reading of para 11 of the assessment order shows that it contains a chart, running into 5 pages, comprising the details of the employees to whom, leave salary was paid more than Rs. 3 lacs by the University during F.Y. 2014-15, relevant to the year under consideration. 9

15. Further, in para 4 of the assessment order, it finds incorporated that the show cause notice issued to the University contains the names of 237 persons with full details of payments made to them by the University.

16. Therefore, it is amply clear that at the time of issuance of notice dated 02.03.2015, under sections 201/201(1A) of the Act to the University, the ITO (TDS) was in possession of the requisite details of the recipients of the income. As such, the legislative mandate of the Explanation to section 191 of the Act, as explained by their Lordships in “M/s Jagran Prakashan Ltd.” (supra), and as followed by the Agra Bench and the Delhi Bench of the Tribunal, respectfully, in the case of “The Branch Manager, Allahabad Bank” (supra), was violated by the ITO (TDS), by not requisitioning, before issuing the show cause notice to the University, information from the recipients of the income, as to whether or not the taxes had been paid by them, nor seeking such information from the concerned Income Tax Authorities.

17. As observed, this is a foundational jurisdictional defect going to the root of the matter. Violation of the mandate of the Explanation to section 191 is prejudicial to the invocation of the jurisdiction of the ITO (TDS) under sections 201/201(1A) of the Act. In absence of such compliance, the invocation of the jurisdiction is null and void ab initio. Such invocation of jurisdiction is, 10 accordingly, cancelled, respectfully following “M/s Jagran Prakashan Ltd.” (supra) and “The Branch Manager, Allahabad Bank” (supra).

18. As a consequence, the order under appeal no longer survives and it is cancelled.

19. In the result, the appeal is allowed.

Order pronounced in the open court on 15/05/2017.

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